California case tests Obama pot policy

2/2/13 4:23 PM EST

A criminal case in California is exposing the tension between federal and state laws on marijuana, and lawyers for the defendant say it is past time for senior Obama administration officials to weigh in.

Attorneys for Matthew Davies, a Stockton, Calif., resident being prosecuted by the feds for running what he contends was a medical marijuana operation, say their client shouldn’t be charged at all, based on statements from candidate and President Barack Obama, and his administration.

In December, Obama said the administration had "bigger fish to fry" than going after pot smokers. "It would not make sense for us to see a top priority as going after recreational users in states that have determined that it's legal," Obama told ABC’s Barbara Walters in response to recent legalization of marijuana in Colorado and Washington. Obama's administration has also released documents instructing U.S. attorneys to consider not using resources to prosecute individuals for federal crimes if they are in compliance with state law.

Lawyers for Davies argue that if Obama sees no reason to prosecute recreational pot smokers or those following state law, there’s no reason for those involved in medical marijuana operations to face federal charges. Davies was indicted last year on two counts of manufacturing marijuana, each of which carries a five-year mandatory minimum sentence. Prosecutors have offered a plea deal for seven years.

The government raided Davies’s business Oct. 4, 2011, allegedly discovering 1,962 growing marijuana plants, 900 plant starter cuttings and 40 pounds of processed marijuana. The feds allege the business generated $1.3 million in sales and profits of $288,000 in its seven months of existence, according to a plea deal with one of Davies’s co-defendants.

Attorneys for Davies, however, say he was operating within state law. In a Jan. 24 letter obtained by POLITICO, they say Davies was running a not-for-profit, not a major commercial enterprise.

“Mr. Davies was not seeking to ‘make large profits from the cultivation and sale of marijuana.’ Rather, he organized not-for-profit cooperatives pursuant to the California Corporations Code, and personally realized only about $50,000 for all of his work over more than a year,” Davies’s attorney Elliot R. Peters wrote.

In response to prosecutors’ claims that Davies’s use of storefronts and the size of his operation violate state law, the letter cites a California Appeals Court ruling essentially finding that large-scale operations that use storefront dispensaries are legal, so long as they are not for profit. The California Supreme Court in January declined to rehear the case, calling the matter "final."

Peters asked prosecutors for a sit-down meeting, saying using federal resources against Davies is contrary to the goal that “justice shall be done.”

“The sad irony is that the federal government has now forced the one person who was doing everything right out of the field, and thereby emboldened people who do reap huge unreported profits, gouge patients, cheat on taxes, wield firearms, and lack the will or business know-how to successfully run a medical marijuana cooperative that complies with state law,” Peters wrote.

Davies, a married father of two girls under the age of two, was a small business owner who began researching medical marijuana after seeing his grandfather suffer through very painful, terminal stomach cancer, Davies’s attorney Steven Ragland told POLITICO in an interview. After Davies realized marijuana could help people like his grandfather, and after seeing the Obama administration’s statements about not prosecuting people in compliance with state law, he decided to go into the medical marijuana business, Ragland said.

Ragland disputes the government’s allegations that Davies was turning a massive profit – saying he paid taxes, took out insurance policies, paid worker’s comp, hired attorneys, lowered prices for consumers and had “all the expenses that a small business would have.”

Additionally, even if one believes Davies wasn’t in compliance with state law, Ragland says, that’s for the state courts to decide – not the feds, who as Obama told ABC News have “bigger fish to fry.”

The government’s position, articulated in a Dec. 19 letter to Davies’s attorneys, is that the administration’s statements on medical marijuana are irrelevant, as marijuana trafficking remains a “serious crime.”

“Mr. Davies was not a seriously ill user of marijuana nor was he a medical caregiver -- he was the major player in a very significant commercial operation that sought to make large profits from the cultivation and sale of marijuana,” wrote Benjamin Wagner, U.S. Attorney for the Eastern District of California. “Mr. Davies is being prosecuted for serious felony offenses.”

At issue are statements by Barack Obama about marijuana and the 2009 Ogden Memorandum, which outlines the government’s policy toward prosecuting federal marijuana offenses in compliance with individual state laws.

The problem, one expert says, is the Ogden Memo is equivocal at best.

“If you look at the documents that [Davies] purports to rely upon, the Ogden Memorandum from 2009 for example, those are very equivocal statements from the government,” said Vanderbilt law professor Robert Mikos. “There are a lot of qualifications in the Ogden Memorandum and the Cole Memorandum that came after it, and you’d be hard-pressed to say anyone can rely on those statements.”

The Ogden Memo, released by the deputy attorney general in October 2009 for select U.S. attorneys, says in part, “The department is also committed to making efficient and rational use of its limited investigative and prosecutorial resources. … The prosecution of significant traffickers of illegal drugs, including marijuana, and the disruption of illegal drug manufacturing and trafficking networks continues to be a core priority. … As a general matter, pursuit of these priorities should not focus federal resources in your states on individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana.”

But the memo goes on to say, “On the other hand, prosecution of commercial enterprises that unlawfully market and sell marijuana for profit continues to be an enforcement priority of the department. To be sure, claims of compliance with state or local law may mask operations inconsistent with the terms, conditions, or purposes of those laws.”

The Cole Memorandum, released in June 2011, further clarifies: “The Odgen Memorandum was never intended to shield such activities from federal enforcement action and prosecution, even where those activities purport to comply with state law. Persons who are in the business of cultivating, selling, or distributing marijuana, and those who knowingly facilitate such activities, are in violation of the Controlled Substances Act, regardless of state law.”

Mikos says Davies’s attorneys are making a play for sympathy to get the feds to drop the charges of their own volition, as Davies doesn’t have much of a defense come trial.

“This argument is just a nonstarter in the court. To say that the government said, ‘Hey, we’re not going to spend our resources prosecuting marijuana,’ doesn’t mean you can go out and violate the law,” Mikos said. “It’s a case where there’s no really real legal claim to be made against the federal government.”

Davies’s attorney says the confusion in the matter means the Obama administration “owes it to the public” to weigh in.

“Now is the time for the Obama administration to tell us what its policy is in terms of prosecuting people who comply with state marijuana laws, because the statements that have been made that said, ‘If you comply with state law we won’t come after you,’ are demonstrably false in Matt’s case,” Ragland said.

Mikos cautions that since it’s unclear whether Davies was in compliance with state law, and given that California’s laws on medical marijuana are “a mess,” this may not be the test case marijuana advocates are waiting for to force the federal government’s hand. That said, it is indicative of a broader confusion taxing courts across the country.

“State courts, even the highest state courts, are really struggling with these issues, because they’re really difficult issues,” Mikos said. “It’s tasking overburdened lower state judges with an extremely complicated constitutional issue, and they’re coming to all sorts of different conclusions. … Until you get a federal court to weigh in, and preferably a federal appeals court or the Supreme Court, I think these issues will continue.”

In January, Davies’s wife, Molly, wrote a letter to President Obama asking why his administration was prosecuting her husband, and Davies’s attorneys also wrote to Attorney General Eric Holder asking him to review the matter. Ragland says they have not received any response to either.

A spokeswoman for Wagner said his office was unable to comment on an open case.

The first hearing on preliminary motions in the case is set for May. Two co-defendants have agreed to plea deals with the feds.